Working Paper: NBER ID: w17248
Authors: James A. Levinsohn; Todd Pugatch
Abstract: Recognizing that a credible estimate of a wage subsidy's impact requires a model of the labor market that itself generates high unemployment in equilibrium, we estimate a structural search model that incorporates both observed heterogeneity and measurement error in wages. Using the model to examine the impact of a wage subsidy, we find that a R1000/month wage subsidy paid to employers leads to an increase of R660 in mean accepted wages and a decrease of 15 percentage points in the share of youth experiencing long-term unemployment.
Keywords: wage subsidy; youth unemployment; Cape Town; labor market; South Africa
JEL Codes: J64; J68
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| R1000/month wage subsidy (J68) | mean accepted wages (J31) |
| R1000/month wage subsidy (J68) | share of youth experiencing long-term unemployment (J64) |